15. Application of the theoretical model
15.3. Financial and resource viability of the AfDB
Resource and financial viability include financial means, personnel and possibly other resources such as external expertise and knowledge etc. (Jørgensen and Laatikainen, 2012). This means that in assessing the resource and financial viability of the AfDB, I must consider indicators beyond funds alone. In this sections, I discuss where the AfDB gets its funds from, how much (financial) resources it has access to and how much it has disbursed. It is difficult to state categorically whether the AfDB has enough resources to operate effectively on advising ECOWAS governments or not without comparing its finance to other regional equals. In my interview with the AfDB officials in Accra, the officials acknowledged that the AfDB’s financial resources will always be a small fraction of Africa’s substantial needs. The fiscal pressures confronting many of the AfDB’s traditional donors are also challenging its capital flows. However, the AfDB is now looking at new sources of development capital from emerging economies and the private sectors, which are becoming more important for the funding of the AfDB’s projects and initiatives.
AfDB funding
When the African Development Bank was established in 1964, under the agreement of Khartoum, Sudan, by the governments of Africa, the share capital was fixed at 250 million Units of Accounts (UA) divided into 25 000 share of par value of UA 10 000 per share (Fordwor, 1981). In real monetary terms, the value of a share was 12 000 dollars per share (equivalent to 91 000 USD in current value). The authorized capital was fixed at 300 million USD (approximately 2, 3 billion USD in current value). Subscribers to the Bank were required to pay 50% of the shares issued to them while the balance remained callable capital. When the AfDB was established, initially only (independent) African countries were admitted to become members of the Bank. However, as stated by the AfDB itself, due to growing demand for investments by non-African countries and because of the AfDB group’s limited financial resources, membership was opened to
non-52
regional countries.25 As of 2015, the AfDB had 80 member countries, comprising 54 regional member countries (RMC) and 26 non-regional member countries (NRMC), primarily from Europe, America and Asia (Afdb.org, 2015).
Figure 16 African Development Bank top Donors by % of donations (2014)
Country %
Nigeria 9,25
United States of America 6,07
Japan 5,57
Egypt 5,28
Canada 4,59
Germany 4,18
Algeria 4,05
South Africa 4,02
France 3,81
Morocco 3,75
Source: AfDB Annual Report 2014.
The main sources of funds to the AfDB is subscription by its members. AfDB funds are derived from subscriptions by member countries, borrowings on international markets and loan repayments (ibid.). Its resources also come from African Development Fund (ADF) and the Nigeria Trust Fund (NTF) capital increases. The role of the ADF is to provide the institution’s regional member countries with resources to boast their productivity and economic sustainability. It is difficult to state categorically whether the AfDB has enough resources to operate effectively or not without comparing its finance to other regional equals. To do this the AfDB is compared with other Multilateral Development Banks (MDB) with regards to the commitment to lend. The table below summarizes the different lending windows for the MDBs, noting what types of financial assistance they provide, who they lend to, when they were founded, and how much financial assistance they committed to developing countries in 2014 or FY2015.26
25 Callable capital is capital that is subject to call only as and when required to meet the obligations of the bank on borrowing of funds for inclusion in the Bank’s ordinary capital resources or guarantees chargeable to such resources
26 Data for the World Bank Group Includes IBRD, IFC, and IDA.
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Figure 17 MDB Lending Windows -New Commitments, 2014
Source: MDB Annual Reports.
From the two figures above it could be said that taking individually, the African Development Bank will lend the least among the main Multilateral Development Banks.
Lending only 6,9 billion dollars compared with 13,3 billion dollars of the Asian development Bank. This is a clear sign that the AfDB is less financially resourced that its counterparts. This has implications on the AfDB’s ability to finance development projects, especially those that require large capital investments like the building of electric dam and grids (see figure 2 and figure 3 above). To fully understand the difficulties of the African Development Bank Group to raise the much needed funds and lend more, one must understand the historical context and developments leading to the establishment of the African Development Bank group.
Figure 18 Financial Assistance over Time
Source: MDB Annual Reports.
Overview of MDB Lending Windows -New Commitments, 2014 (Billion Dollars)
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The figure above shows that Multilateral Development Banks (MDB’s) financial assistance to developing countries has been growing since 2000. However, the African Development Bank’s assistance to its member’s countries is growing at a slower pace.
The World Bank Group’s concessional lending arm, IDA, has grown steadily over the decade in nominal terms, while the regional development bank concessional lending facilities, by contrast, have remained relatively stable in nominal terms. One can argue that the World Bank is a larger institution than the AfDB with many wealthy donor countries. However, the same cannot be said as the explanation of the gap between the AfDB and the Asian Development Bank for example. The two banks were practically established at the same time, with almost identical foreign donors. With the USA, Japan, Canada and Germany donating to both institutions, the Asian Development Bank is better financed than the African Development Bank.
Figure 19 African Development Bank and Asian Development Bank top Donors by 5 of donations (2014)
AfDB % AsDB %
Nigeria 9,25 Japan 15,68
USA 6,07 USA 15,57
Japan 5,57 China 6,47
Egypt 5,28 India 6,36
Canada 4,59 Australia 5,81
Germany 4,18 Canada 5,25
Algeria 4,05 Indonesia 5,13
South Africa 4,02 Korea 5,06
France 3,81 Germany 4,35
Morocco 3,75 Malaysia 2,74
Others 49,43 Others 27,58
Source: AfDB and AsDB Annual Reports.
55 CHAPTER 5
CONCLUSION
From the analysis of the data and interview with the AfDB’s officials in Accra, one thing is clear, the African Development Bank lacks the necessary funds to finance the many initiatives needed on the continent and in West Africa in particular (see pages 45 figure 16: MDB lending windows – new commitments). This can be traced to the history of the funding of the AfDB. One of the most debated issues among African founding countries of the African Development Bank Group was concerning the structure and membership, i.e. whether membership should be open to non-African countries. A number of countries opposed open membership of the AfDB to non-African countries.
This was because they feared that the non-African countries could end up dominating the institution by subscribing a majority stake of its capital stock (Barnes, 1984), due to history and the bitterness that many Africans still felt at the time towards western countries whom they considered oppressors. As one of the officials at the AfDB Ghana office put it ‘‘... this is not unusual… remember this was at the time when half of their countries on the continent were still under colonialism’’. The idea of inviting the former colonialists to participate in an African development institution meant for Africa shortly after gaining independence did not appeal to most African governments at the time.
However, some African countries favored the idea of open membership. They emphasized the economic benefits of opening the capital stock of the institution to non-African countries. That is, the participation of non-non-African countries would provide an additional source of capital and would ease the burden on poor African contributors and subscribers. They instead argued that the AfDB should be structured in such a way to ensure that African nations maintained majority shares (interview with Akin Alugbade.
2016). With this argument in play, it was quickly realized that securing the necessary resources to achieve the objectives for setting up the AfDB meant obtaining funds from the capital exporting countries. However, some member countries were concerned that the AfDB receiving funds from non-African countries would interrupt the flow of bilateral aid they receive from such ‘donor’ countries. This issue was so important to some members that at the Khartoum meeting in 1963 on the establishment of the Bank, the representative from Mauritania advocated the insertion of the word 'additional'
56
because a number of countries receiving such aid wished to maintain it without passing through the AfDB (Barnes, 1984).
Aside the issues of funds, another major controversy concerned the formula for representation for the African countries. The small (resource-poor) countries favored a one flag for one vote formula that would assure that each member had an equal representation in terms of votes, regardless of the number of subscription held by that member country. For instance, at the Khartoum congress for the signing of the treaty for the establishment of the AfDB, Gambia argued that the proposed minimum subscription level at the time was twenty percent of its annual revenue and that the AfDB members should consider some other formula for assigning subscription levels (ibid.). As a compromise, large resource-rich countries like Nigeria advocated a formula of proportional representation which would acknowledge the larger financial commitments of those countries, while giving the smaller countries a voice. As a compromise resolution, a formula was agreed upon in the AfDB's Charter under Article 35 (1) which states that ‘‘each member shall have 625 votes and, in addition, one vote for each share of the capital stock of the Bank held by that member’’ (The African Development Bank, 2011). With this compromise in place, the large contributors like Nigeria were able to secure greater voting power than under the ‘‘one flag - one vote’’ proposal. However, their degree of power was not as great as it would have been under the proposal for proportional representation. With minimum subscriptions set at 1 million USD and maximum subscriptions set at 30 million, a member country with the minimum level of subscription would have 725 votes, while a member with the maximum level of subscription would have 3,625 votes. That is to say that under the agreed formula, a larger resource rich subscribing country like Nigeria would have five times the voting power even though its subscriptions could be as high as thirty times greater. This compromise was seen as providing for a more equitable position between the large member states and the smaller countries while allowing the large members states to make sizable contributions to the institution. The tension between the large (resource-rich) countries and the small (resource-poor) countries has been analyzed by many as a sign of potentially disintegrative influence of imbalance among countries within the African community (Barnes 1984). On this, the officials of the AfDB in Accra disagree. They see it as a ¨ normal¨. That is ¨… it is normal that a country contributing more to an institution would
57
like to have a higher influence over the institution than those contributing less¨ (Akin Alugbade. 2016).
According to the neo-classical economic perspective on regional integration, large disparities in size and resource among members of a regional bloc such as the ECOWAS, say Gambia versus Nigeria, is seen as a major setback to regional integration (FAO, 2015). Neo-liberalists has argued that when financial obligations are placed too heavily upon the poorer countries, the cooperative effort of the community can fail. In the case of the African Development Bank, the ‘‘balancing’’ formula under Article 35 of the Charter helped ease the financial pressures on the smaller, resource poor member countries and calmed their fears of being dominated by the resource rich countries. This paved the way for the AfDB to be established. The AfDB today has an open membership.
However, it still lacks the necessary funds to finance the many initiatives needed on the continent and in West Africa in particular.
Conclusion
This thesis in looking into the advisor role of the African Development Bank within the Economic Community of West African States (ECOWAS) region, has revealed that the African Development Bank Group (AfDB) is an institution in the process of defining its focus and seeking to (re)establish itself as a premier, results-orientated development institution with a comparative advantage for its African member states. My analysis and feeling from the interviews with the African Development Bank officials in Ghana tells me that the AfDB overall has so far played a limited role in national policy dialogue in Ghana, with low visibility and a minor contribution (if any at all). For instance I had a meeting with one of the staff members who was not Ghanaian by nationality. In our conversation I asked about the recent judicial corruption case brought out by Anas.
To my surprise, she was completely unaware of the issue. I find it very surprising considering the fact that eradication of corruption is singled out as one of the main focus areas where the AfDB is advising African governments under the Governance Strategic Framework and Action Plan (GAP II) 2014-2018 (see AfDB annual Report, 2014).
Although, there might be variation between countries with regards to the contribution of the AfDB as an advisor, within the ECOWAS region, in Ghana the AfDB has been criticised for being passive and reactive. When the AfDB contribute to national discussions, they turn to be over-responsive to the incumbent governments to an extent
58
that it sometimes becomes inconsistent with the need for a firmer, more fundamental and coordinated stand in policy dialogue.27
In Ghana, since early 2012, with the inauguration of the new government, the AfDB is described as having a positive policy dialogue with the government of Ghana, especially in the area of private sector development and finance. During my visit to the AfDB offices in Ghana, I was made aware that in the early 2000s, several non-regional members expressed disappointment at the performance of the AfDB such as failure to engage with other development actors. In response to that, the AfDB initiated a commission led by former World Bank Vice President David Knox, to evaluate its performance. The commission drew attention to a number of problems areas, including poor quality of lending; lack of focus, conflicting interests of shareholders as well as huge discrepancy between official policies and actual practices. The AfDB according to the Accra official has been working to correct this. They point to the fact that the AfDB has since become a signatory to both the Rome Declaration on Harmonisation and the Paris Declaration on Aid Effectiveness, the agreement among donors to better align and harmonise their policies behind recipient country policies. The AfDB claims these improvement initiatives have been showing positive results. As an example, the AfDB officials point to the AfDB’s triple A ratings (AAA or excellent credit rating), although none of its ECOWAS regional member countries enjoy that same level of credit worthiness. In sum, the AfDB has come a long way beyond its role as a channel of development financing and has become a major economic policy advisor to governments in ECOWAS West Africa. This proves that, beyond the AfDB role as a channel of development financing, there is another critical contribution which African countries desperately need, and that is not resources, but policy advice support on how best to do things.
27 Neither confirmed or denied by AfDB Ghana officials
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